Power cost to rise post-Supreme Court order on compensatory tariff

November 5, 2018 344 Manish Sirhindi

Following a recent verdict by the apex court allowing the Adani and Tata groups to get ‘compensatory tariff ’ due to increase in the prices of imported coal, the cost of power is all set to escalate in all partner states, including Punjab and Haryana.

However, the states buying power from IPPs moved the court claiming that they had entered into long-term power purchase agreements with their respective power corporations and the clauses of the same did not allow any change in tariffs.

Pronouncing the final verdict in the case, the Supreme Court has now allowed both the Adani and Tata to approach the Central Electricity Regulatory Commission (CERC) for changing the clauses in the original contracts that were signed in 2010 to allow them to charge a ‘compensatory tariff ’due to increased prices of imported coal. These IPPs would be entitled to claim the additional tariffs from the state from the date the first unit was supplied to them. The increase in the power cost would eventually be passed on to consumers.

Tata Power has a PPA with Punjab for 475 MW and with Haryana for 380 MW, while the Adani Power had signed the PPA with Haryana for 1,424 MW. Punjab gets 4,161 million units and Haryana gets 15,803 million units in a year. In case a bare minimum tariff increase of 1 paise per unit is allowed by CERC, it would result in a Rs 416 crore annual impact for Punjab and Rs 1,580 crore for Haryana.

The tariff revision would be done retrospectively for the power supplied by these companies and all the financial liabilities of states would be passed on to the consumers.

It may be mentioned that the Gujarat government had approached the Supreme Court for directions based on the report of an expert panel that suggested altering the power purchase agreements (PPAs). The committee in its recommendations made earlier this month, had claimed that the three power plants — 4,000 MW Coastal Gujarat Power Limited of Tata Power, 4,620 MW plant at Mundra owned by the Adani Power Mundra Limited and 1,200 MW Essar Power Gujarat Power Limited at Salaya — would get a combined benefit of Rs 1.29 lakh crore in the next 30 years if the recommendations are implemented.

The State Bank of India had also backed the proposal of Gujarat government in Supreme Court to tone down its stressed assets.